Microsoft’s search revenue decline could spell bad news for Google

Sundar Pichai, chief executive officer of Google Inc., speaks during a news conference in New Delhi, India, on Wednesday, Jan. 4, 2017.

Anindito Mukheriee | Bloomberg | Getty Images

Microsoft is forecasting a continued slowdown in its search ad revenue, which could spell bad news for Google parent-company Alphabet, which reports its earnings on Thursday. 

Microsoft‘s latest results beat across the board, but the company saw a 10% year-over-year drop in search advertising revenue, and reported continued decrease for its guidance for the next quarter, according to its first fiscal quarter earnings it released Tuesday.

For the December quarter, Microsoft CFO Amy Hood said “in search excluding TAC, we expect revenue to decline in the mid to high single digit range” during a call with Microsoft investors Tuesday. That suggests a decline of 7% to 9%.

Google’s search engine is much more widely used than Microsoft’s Bing, but the companies have shown similar trends in search advertising revenues.

Last quarter, Microsoft’s search advertising revenue, excluding traffic acquisition costs, decreased 18% as customers spent less on ads.

That was a precursor to Alphabet reporting its first year-over-year quarterly revenue decline ever.

Specifically, Google’s Q2 revenue from search and other on-site ads (minus YouTube) dropped about 10% from the year-ago quarter, from $23.64 billion to $21.32 billion. (Revenue from YouTube advertisements, which it began breaking out separately this year, grew from $3.6 billion to $3.81 billion.)

Prior to that, Microsoft’s search advertising revenue, excluding traffic acquisition costs, increased 1% in the quarter that ended Mar. 31, which overlapped with the beginning of the pandemic.

That quarter, Alphabet reported a 9% increase in revenue from search and other (minus YouTube) revenue, which jumped from $22.54 billion in 2019 to $24.50 billion in 2020.

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